Media and Entertainment Industry Faces Ongoing Drama

Rapid change is the norm in today’s media and entertainment industry. Profit spoke with Adrian Drury, principal analyst with the London, England-based media consulting firm Ovum, about the changing market environment for companies like HBO.

Profit: We hear a lot about “media convergence.” What is it?

Drury: One of the big misnomers at the moment is the idea of convergence to describe what digitization of content does. Fixed networks converged with mobile networks. But actually, the real macro trend is fragmentation rather than convergence. The move to IP that is enabling the big brands to converge all those services is enabling thousands of little startups to innovate and build their own little services. That’s what’s pushing the velocity of innovation on the internet, and that’s why the real competition for branded services like HBO and Time Warner changes every day. It’s why the real strategic imperative for big media and entertainment companies is to be as flexible as possible, so that as this landscape evolves, they can evolve with it.

Profit: What should customers expect from that evolving landscape?

Drury: Well, audiences are migrating away from conventional TV platforms to online, and advertising revenue is following. Companies that have used conventional platforms are now having to follow their audience online and distribute their content over more platforms and a wider variety of branded channels. They’re moving from a model where they knew their competitors and they all competed with the same model. Now their competitors are almost infinite. They’re also competing in a market where it’s suddenly much easier to copy and distribute content. It’s a more hostile operating environment.

Profit: Who are the players on this new field?

Drury: Other parties that are looking to retail content to users—games console manufacturers such as Microsoft, Xbox, Sony, PS3, and maybe even Nintendo. Big-name consumer electronics manufacturers—manufacturers like Sony, Panasonic, Sharp—who want to put things like Hulu directly on their TVs to draw people in and then up-sell the movies at the back. You also have this new, emerging breed of players that 10 years ago may have run DVD rental businesses, who are now exploiting online as a new way to distribute digital media. There are players such as Netflix and Amazon Video On Demand, and then you’ve got your established retailers that are building an online presence, such as Best Buy and Walmart.

Profit: Will the accelerated pace of change begin to slow down?

Drury: You’d be hard pressed to find anybody in the media world who would put a timeline on that. With digital technology, the genie is out of the bottle. Volatility is the norm. Even among guys like me, who spend all day thinking about what exactly this means to different markets, the general consensus is we don’t totally understand yet what the endgame is here. That’s why really smart media companies are gearing themselves up to be really flexible in how they evolve.